- Gold prices have attracted some bullish buyers, halting declines from Monday's more than one-week high.
- Geopolitical risks will drive flows into some havens, but a stronger U.S. dollar could limit commodity gains.
- Signs of a slowdown in China, the largest consumer of bullion, could put further pressure on XAU/USD.
Gold prices (XAU/USD) retreated intraday from a more than one-week high hit on Monday, eventually settling in the red, ending a two-day winning streak amid broad-based US dollar (USD) strength. Investors are pricing in the possibility that the Federal Reserve will make another major interest rate cut in November. That pushed U.S. Treasury yields higher, pushed stock prices to two-month highs and diverted money away from the low-yielding yellow metal.
This, along with disappointment over China's fiscal stimulus announced over the weekend and weak inflation data, did little to inspire investor confidence. This turned out to be another factor undermining the gold price and contributing to its decline. That said, geopolitical risks stemming from the ongoing conflict in the Middle East helped the safe-haven precious metal halt intraday declines and remain stable above the $2,640 level during Tuesday's Asian session. Ta.
Daily Digest Market Movement: Gold Prices Gain Support from Geopolitical Risks, Curbing Expectations for Fed Rate Cuts, Curbing Earnings
- The U.S. dollar weakened on Monday as support for less aggressive policy easing by the Federal Reserve grows, with widespread expectations for a regular 25 basis point interest rate cut in November. It rose to its highest level since the day.
- Minneapolis Fed President Kashkari said Monday that monetary policy remains restrictive and suggested further modest rate cuts may be appropriate as the job market remains strong.
- Federal Reserve President Christopher Waller said the economy remains strong and may not be slowing as much as expected, and the central bank needs to be more cautious in cutting interest rates than it was at its September meeting.
- A lack of quantitative details on China's fiscal stimulus, along with signs of economic weakness in the largest bullion consumer, led to an intraday sell-off around gold prices at the start of the week.
- Israel on Sunday pledged a strong response to a Hezbollah drone attack on an army base that left four soldiers dead and seven seriously injured, raising the risk of further escalating geopolitical tensions.
- This comes amid fears that Israel will launch attacks against Iranian assets and broader regional conflicts in the Middle East, providing some support for safe-haven precious metals.
- Traders are currently keeping an eye on the release of the Empire State Manufacturing Index, which, along with FedSpeak, should create short-term trading opportunities centered on XAU/USD later in the North American session.
Technical outlook: Gold prices could surpass September all-time highs and aim for a breakout of $2,700
From a technical perspective, the overnight highs around $2,666-$2,667 seem to be an immediate hurdle. If the strength continues, gold prices could move towards the all-time highs of $2,685-$2,686 reached in September. This will be closely followed by the $2,700 mark, which, if cleared, will set the stage for an extension of the uptrend that has been established for several months.
On the contrary, weakness below the immediate support at $2,632-$2,630 is likely to attract some buyers, which is likely to remain limited around the $2,600 mark. Failure to adhere to the aforementioned handle will be seen as another trigger for bearish traders, leaving gold prices vulnerable to accelerating the decline towards the next relevant support around the $2,560 zone. On the way to the psychological mark of $2,500, the correction slide could widen further towards the $2,535-$2,530 region.
Gold FAQ
Gold has played an important role in human history as it has been widely used as a store of value and a medium of exchange. Today, apart from their brilliance and use as jewellery, precious metals are widely seen as safe assets, meaning they are considered a good investment in turbulent times. Gold is also widely seen as a hedge against inflation and currency depreciation, as it is not dependent on any particular issuer or government.
Central banks are the largest holders of gold. With the aim of supporting their currencies in times of turmoil, central banks tend to purchase gold to diversify foreign exchange reserves and improve perceptions of economic and currency strength. High gold reserves can be a source of confidence in a country's solvency. Central banks added 1,136 tonnes of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest annual purchase amount since records began. Central banks in emerging countries such as China, India and Türkiye are rapidly increasing their gold reserves.
Gold has an inverse relationship with the US dollar and US Treasuries, which are major reserve and safe haven assets. Gold tends to rise when the dollar falls, allowing investors and central banks to diversify their assets during times of turmoil. Gold is also inversely correlated with risk assets. Rising stock markets tend to push gold prices down, while declines in riskier markets tend to favor the precious metal.
Prices may vary depending on various factors. Geopolitical instability and fears of a deep recession could cause the price of gold to quickly rise from its safe-haven status. Gold, a non-yielding asset, tends to rise when interest rates fall, but rising costs typically put pressure on the yellow metal. Still, most moves will depend on how the US dollar (USD) behaves, as the asset is priced in dollars (XAU/USD). A strong dollar tends to suppress gold prices, while a weak dollar can push gold prices up.
